• Wednesday, April 24, 2024
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BusinessDay

Nigeria’s largest consumer firms lose N988bn on weaker naira

Naira weakens by N2.00k on black market

Ten consumer goods firms in Nigeria incurred a combined foreign exchange loss of N987.7 billion last year on the back of naira devaluation, according to data compiled by BusinessDay.

The firms are Cadbury Nigeria Plc, Nigerian Breweries Plc, Nestle Plc, Dangote Sugar Refinery Plc, International Breweries Plc, PZ Cussons Nigeria Plc, Guinness Nigeria Plc, Dangote Cement Plc, BUA Cement Plc, Lafarge Africa Plc.

The FX loss recorded by the firms in 2023 rose more than sevenfold compared to the previous year when nine of them lost around N129.8 billion. Cadbury recorded no FX gain or loss in 2022.

The FX loss figures for two of the firms, PZ Cussons and Guinness, are for a six-month period that ended November and December respectively.

PZ Cussons reported an FX loss of N87.1 billion for the six months ended November, up from N2.7 billion in the same period of 2022.

Guinness had a loss of N15.7 billion for the six months ended December, up from N4.53 billion in the same period of 2022.

“The devaluation was massive as we moved from about N450/$ at the official rate to almost N1,600/$,” Muda Yusuf, chief executive officer of the Centre for Promotion of Private Enterprises, said.

He said most of the consumer firms have exposure in terms of their foreign liabilities that they used to get their raw materials, facilities or all sorts of things from their parent companies.

Israel Odubola, a Lagos-based research economist, said: “The FX loss widening is due to the effect of the naira depreciation. These companies had foreign currency-denominated obligations in their books.”

He added that with the massive depreciation of the naira, which was over 40 percent in 2023, the naira equivalent of their foreign currency-denominated obligations widened.

“I also noticed that some of these companies made losses not because revenue fell but because of the significant escalation of their finance costs in their books.”

Further findings from the firms’ financial statements shows that Cadbury, Nigerian Breweries, Nestle, International Breweries and Dangote Sugar posted a combined after-tax loss of N346.7 billion last year.

In 2022, Cadbury, Nigerian Breweries, Nestle and Dangote Sugar had after-tax profit of N117.4 billion while International Breweries posted a loss of N21.6 billion.

PZ Cussons reported an after-tax loss of N74.1 billion compared to a profit of N7.67 billion, while Guinness recorded a loss of N5.23 billion as against a profit of N4.02 billion.

BUA Cement recorded a profit of N69.45 billion, down from N101.0 billion. Lafarge Cement’s profit fell to N51.1 billion from N53.7 billion. Dangote Cement however recorded an increase in profit to N455.6 billion from N382.3 billion.

“Finance cost and local cost of energy, which has increased, have caused the big numbers of losses,” Gabriel Idahosa, president of Lagos Chamber of Commerce and Industry, said.

Since President Bola Tinubu announced petrol subsidy removal during his inauguration on May 29, pump prices have more than tripled to N600, while the value of the naira has plunged following the floating of the currency.

Last June, the Central Bank of Nigeria merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

The liberalisation of the foreign exchange regime weakened the naira from 463.38/$ to 1,548.3/$ as of March 1, 2024. At the parallel market, the naira depreciated to 1,544/$ from 762/$.

“The devaluation of the naira which led to a revaluation of our foreign currency obligations undoubtedly impacted our financing cost and consequently the profit after tax. However, we remain optimistic about our capacity to overcome the current economic difficulties and emerge stronger,” Wassim Elhusseini, managing director/CEO of Nestle Nigeria, said in a statement.

The increase in petrol prices and foreign exchange cost contributed to the surge in the country’s headline inflation rate, which rose to 29.90 percent in January from 28.92 percent in the previous month, according to the National Bureau of Statistics.

Food inflation, which constitutes 50 percent of the inflation rate, rose to 35.41 percent from 33.93 percent.

The World Bank’s latest Nigeria Development Update report revealed that rising inflation and sluggish growth in Africa’s most populous nation increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year.

“The Nigeria business landscape experienced significant shifts in 2023 with substantial impact on businesses and livelihoods nationwide,” Uaboi Agbebaku, company secretary and legal director at Nigerian Breweries, said in a statement.

He said high double-digit inflation rates (with food inflation at more than 30 percent), removal of subsidy on the premium motor spirit (fuel), devaluation of the naira, and foreign exchange scarcity further exacerbated the already difficult environment for the populace and businesses.

Manufacturers Association of Nigeria, said in a report last year that manufacturing activities continued to suffer due to the persisting scarcity of FX and further depreciation of the naira.

The association added that the lingering FX scarcity and continuous depreciation of the naira have left manufacturers bleeding and limited their capacity utilisation since the importation of non-locally produced critical input has become a nightmare.

The tough business environment is also pushing multinationals to exit Africa’s biggest economy as Procter & Gamble, GlaxoSmithKline Consumer Nigeria, Equinor, Sanofi and Bolt Food announced plans to leave the country this year.

Between July and September, the tax revenue from local companies in Nigeria declined by 36.4 percent to N651.6 billion from N1.02 trillion in the previous quarter (April-June).

Foreign investment into Nigeria dropped to the lowest since 2014 in 2023 from $5.42 billion in the previous year.

Apart from investments, business activity in the country contracted four times last year.

BusinessDay reported last month that the rise in uncertainty in Nigeria’s macroeconomic environment is on course to further dampen business activities, with some more firms seen closing up shop this year.

Unstable macroeconomic indicators have affected the medium and long-term plans of many businesses, a situation experts said could drive down profitability, lead to more job losses, and low tax revenue, threaten the survival rate of many businesses, or trigger more exits of multinationals.

The prevailing dollar backlog, coupled with external challenges amidst global economic uncertainties, casts a shadow of uncertainty over Nigeria’s economic horizon, analysts at Comercio Partners Research said in a recent report.

“As Nigeria charts its course through these economic headwinds, the path forward remains uncertain. The nation stands at a pivotal juncture, where the interplay of inflationary pressures, tightening measures, liquidity dynamics, and currency challenges will shape its economic destiny in the coming months,” they added.